Correlation Between Standard Lithium and Compass Minerals
Can any of the company-specific risk be diversified away by investing in both Standard Lithium and Compass Minerals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Standard Lithium and Compass Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Standard Lithium and Compass Minerals International, you can compare the effects of market volatilities on Standard Lithium and Compass Minerals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Standard Lithium with a short position of Compass Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Lithium and Compass Minerals.
Diversification Opportunities for Standard Lithium and Compass Minerals
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Standard and Compass is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium and Compass Minerals International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Minerals Int and Standard Lithium is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Standard Lithium are associated (or correlated) with Compass Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Minerals Int has no effect on the direction of Standard Lithium i.e., Standard Lithium and Compass Minerals go up and down completely randomly.
Pair Corralation between Standard Lithium and Compass Minerals
Considering the 90-day investment horizon Standard Lithium is expected to under-perform the Compass Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Standard Lithium is 1.08 times less risky than Compass Minerals. The stock trades about -0.26 of its potential returns per unit of risk. The Compass Minerals International is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,385 in Compass Minerals International on August 29, 2024 and sell it today you would earn a total of 92.00 from holding Compass Minerals International or generate 6.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Standard Lithium vs. Compass Minerals International
Performance |
| Timeline |
| Standard Lithium |
| Compass Minerals Int |
Standard Lithium and Compass Minerals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Standard Lithium and Compass Minerals
The main advantage of trading using opposite Standard Lithium and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Lithium position performs unexpectedly, Compass Minerals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Compass Minerals will offset losses from the drop in Compass Minerals' long position.| Standard Lithium vs. Lithium Americas Corp | Standard Lithium vs. Piedmont Lithium Ltd | Standard Lithium vs. NioCorp Developments Ltd | Standard Lithium vs. Teck Resources Ltd |
| Compass Minerals vs. Skeena Resources | Compass Minerals vs. Materion | Compass Minerals vs. IperionX Limited American | Compass Minerals vs. EMX Royalty Corp |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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